Nvidia Buy Pitch
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Colgate Investment Group Ticker: NVDA Nvidia Market Cap: 309,045.2 mm Buy Pitch Div Yield: 0.1% Sector: TMT Silicon Spring 2021 Current Price: $498.46 CEO Salary: $1,815,360 Matt, Matt, & Ben Company Overview NVIDIA Corporation ● Founded in 1993 ● Headquarters in Santa Clara, California C-Suite 18,975 ● CEO: Jen-Hsun Huang Number of Employees ● CFO: Colette Kress Operating Segments ● GPU ○ used in PC gaming, cloud-based gaming, designing, special effects, and artificial intelligence. ● Tegra Processor. 61.8% Normalized Net Income ○ more mobile based, used in artificial intelligence computing, self-driving Growth for 2021 vehicles, medical instruments, and robotics Company Quality Characteristics Important Financials QCOM → as a comparison ● Low debt-to-equity ratio (.35 as of 1/31/21) ● Debt-to-equity 2.06 52.73% ○ decreased in past two quarters ● Current ratio 2.15 Revenue Growth 2020 → 2021 ● 30.67 Operating margin - 1/31/21 ● ROA 15.13 Gross Margin Summary 67.53% ● Overall strong growth profile EPS growth vs. previous year ● Revenue growth >50% over the last year ● High EPS growth and ROA indicating profitability for shareholders 19.65 ROA - 1/31/21 Source: zacks.com Capital Structure Overview ● NVIDIA invests significantly in R&D, source of most of their debt ● Manufacturing is outsourced to third-party companies ● Acquired more debt in the past couple of years, indicates there may be a potential ~46% Debt to Equity innovation due to subsequent investment in R&D ○ Total Debt: 7,718m ○ Total Common Equity: 16,893m ○ Total Capital: 24,611m ~32x ● Debt has increased along with capital Source: capitaliq.com Interest Coverage ○ Although debt has increased exponentially, common equity has increased at a linear steady rate Market/Industry Analysis ● The GPU industry is growing at an astonishing rate as the need for power-efficient, 33.6% quick personal computers grows Projected CAGR ● Constant technological advancement is driving the demand for better GPUs that can process calculations quicker and consume less energy ● Growth is being driven by increased demand for high-quality 2D and 3D graphics $19.75B Market Size in 2019 as well as the ever-growing internet of things ● Gaming, Design & Manufacturing, & Healthcare are expected to drive the increase in the GPU market ~10 Number of Key Market Players Catalyst Analysis ● A bright future: Nvidia is swiftly moving into the field of cloud computing ● Company has purchased Mellanox which operates over 200 existing data centers around the continental United States ○ merger marks its expansion into AI based cloud computing and a cheaper computational solution for the masses ● Nvidia aims to expand out of the already booming hardware market ● Utilization of proprietary GPU and CPU technology give it a major advantage when taking on other businesses sectors ● Can apply its proprietary technology to create major change within areas such as AI and Graphic Modeling COVID-19 Sensitivity Analysis ● No layoffs due to coronavirus, CEO announced that the company would give No Layoffs raises to all employees Promised ● Able to do this because demand for computers and technology related to computers Company-Wide greatly increased due to lockdown Raises ○ workers needed new computers, and many in the healthcare and data analysis industry needed newer technology to apply to the crisis ● Provided additional employee support +53% y/y revenue change ○ gave free resources for their children’s education ○ supplying free 90-day trials for their GPU system Clara Parabricks to researchers, a computational framework supporting genomics applications +61% from DNA to RNA q/q revenue change Comps Analysis SWOT: Strength ● Stock price has been on a steady rise since July ● GPU chips are on the rise as the video game industry continues to gain popularity ● Potential upsides are propped up by the recent Cryptocurrency boom, many use 7.06% Nvidia’s GPU while mining cryptocurrency such as Bitcoin and Ethereum Intel Average Annual Sales Growth ○ Nvidia claims miners purchases of GPU accounted for over $100 million in revenue last quarter ● Rise in Data Centers contribute to Nvidia’s rise as Data Center suse GPO’s, which is expected to continue to rise 23.6% ● GPUs are the go-to processors for AI and Deep Learning Nvidia Average Annual Sales Growth ○ Data Center revenue (the sector responsible for Deep Learning) has increased to $968 million as of Q4 2020 SWOT: Weaknesses ● Faster rendering technology used by its competitors ○ AMD uses OpenGL as its main tendering technologies which is much faster than the rendering technologies used by NVIDIA ● Increased us of mobile technology ○ As mobile technology gains attention games become easily available on 62% mobile devices, demand for graphics cards specifically decreases Intel’s Overall GPU ● Slow to get into the LTE modem market ○ Nvidia lags behind Qualcomm (which recently swooped in and replaced Nvidia as the supplier of chips for the Nexus tablet) SWOT: Opportunities ● Acquisition of ARM ○ Expected to be completed, at the latest, Q1 2022 898% Increase in Data Center ○ Will drive innovation with Nvidia expanding ARM’s R&D in AI revenue since Q4 2016 ● Partnerships with Mercedes-Benz, Toyota, Volkswagen and Uber solidify its place in the autonomous driving sector ○ A few hundred vehicle manufacturers use their AI platform (DRIVE) 370 Number of companies are in ○ Legalization of autonomous driving is likely within the next several years Nvidia’s DRIVE program ● Consumer GPU growth is projected to continue due to gaming ○ Nvidia is the most popular graphics card brand for high-end gaming ○ New GPUs with reasonably priced real-time ray-tracing technology is a huge 14.1% CAGR for the gaming GPU breakthrough in gaming, allowing for far more realistic visuals market during 2021-2026 SWOT: Threats 45.05% ● Largest threat are other competitors AMD Revenue Growth 2020 ● Artificial intelligence is increasingly dominating the market, and other companies can potentially decrease the value of NVIDIA ● Intel, another semiconductor company, is threatening NVIDIA’s value in the artificial intelligence market ○ Intel’s Xeon chip is supposedly 3.5 times faster than NVIDIA’s Tesla chip 8.97% Intel Revenue Growth 2021 Supplemental Graphs P/E Ratio Stock Performance Compared to Competitors Source: zacks.com Nvidia vs S&P 500 P/Diluted EPS Source: csimarket.com Source: capitaliq.com Thesis Our thesis is to buy Nvidia: Enterprise Value • Overall strong growth profile • Innovations in technology expected to continue • Consumer demand for products also expected to continue Source: zacks.com • Partnerships and acquisitions solidify Nvidia’s strength as a company .